Why We Have a Credit Card (and Why Maybe We Shouldn’t Use It)

My retirement plan. (Photo credit: Wikipedia)

We’ve all heard that credit cards can get you in trouble. When you use them, you have a risk of spending money that you don’t have, and getting yourself into serious debt. Heck, that’s probably how most personal finance bloggers have gotten started. They rack up serious debt, get a swift kick in the rear from reality, pay down their mountain of debt and start a blog. That’s pretty much my story. But I never really racked up much CC debt, mostly it was a personal loan and student loans. I paid interest ONCE on my credit card, and never again. I HATED the feeling of someone siphoning my cash out from under me, I felt like I was being scammed. Though, that’s didn’t stop me from blowing $100,000 before I turned age 21 (UGH! Don’t remind me).

So, Why Do I Have A Credit Card?

Oh, right, my credit card. Honestly, I had drank some of the Dave Ramsey kool-aid at first, and was planning on living my life credit-card free until I could pay for my own island with CASH MONEY and retire early with my mounds of Benjamins keeping me company. After about 7 seconds, though, I realized that I might be missing out on some of the benefits of using a good rewards card. Not to mention I could purchase everything on one card and make one payment a month to take care of my spending. We started by going with a store credit card for the grocery store that we shopped the most at. We would get 3% on all purchases at that store, and 1% for all other purchases. The rewards came in the form of “grocery bucks” that we could use to lower our food budget for that month. We did this for about a year. But the store could not seem to calculate basic math, and kept shorting us on our points. We probably ended up being shorted $50-$100, even after we fought for our coupons every quarter. This was not working.

About this time, we were also looking to plan our first vacation that required an airplane since our honeymoon. We wanted to go to Hawaii for a week, and though, being the frugal man that I am, I would have rather opted to sneak onto a shipping vessel bringing new cars to Hawaii, I thought it best for my marriage to look into booking a flight. The airlines that we normally use (read: the cheapest one) had a credit card offer that seemed pretty awesome. We could sign up, get 25,000 bonus miles (which equals one round-trip ticket) and get a $99 companion ticket voucher right away. Since we were about to book the flight soon, I jumped on this. I was a little worried we wouldn’t qualify, but our credit is decent, so we got the card a few weeks before the vacation. It took about a week to receive the voucher; we booked the flight, and saved about $350 right off the bat. W00t!

We’ve since used the card for almost every purchase, including some bills on auto-pay. We are planning a trip across country for a wedding, and will be able to book the flight using points. This will save us another $700+ this year. Based on our spending, that’s probably a 2% return or so, which is pretty good. We have had this card for 2 years, and have saved over $1,000 using it (minus the $150 in annual fees for those 2 years). We have also NEVER paid a cent of interest, because I never buy something unless I have the money for it. On the surface, it looks like we made a great investment.

Why Maybe We Shouldn’t Use a Credit Card

But it’s not all roses and puppies and rainbows up in this piece. I’ll be honest, I have noticed that we spend more money when we are using our credit card. Mostly, I can see this happening in our “food” category. We will go to the store and drop $80 on “necessities” that we don’t actually need, but since we’re not handing over cash out of our already-slim food budget, we don’t think twice about it. Plus, hey, we’re rackin’ up the miles! I can almost feel the sand between my toes as we scan our $16 bucket of pistachios that we’re going to end up eating in 3 days. Or maybe that’s not sand, but the rubble from all the cash we’re burning….hmmmm….?

We also are less apt to stick to our meal plan if we can just grab food on the way home or pick up some extra groceries because we have a craving. I’ve tracked this and we ended up spending about $600 for our food budget, though our actual budgeted amount was $300. OOPS! Part of why I wrote about our Budget Confessions. We also tend to buy more stuff that’s not in the budget at all. We allocate ourselves some spending cash each month, and when it’s gone, it’s gone. But what if we “need” something and have run out of spending cash? We wouldn’t dare tap the account and spend cash, so we end up throwing it on our credit card. My wife is a sweetheart who is frugal as they come, but when she wants something that’s outside of the budget, she has a magical way of making it look like people are giving us money to buy their product 🙂 . And thus our budget has an inflated Misc category for the month.

So, What Are We Going To Do?

Well, for one thing, we started using emeals (<- affiliate link) to plan our meals, shop the deals for us, and give us a shopping list to help us save money. That’s the best way for us to meal plan and save money without any of the hassle. We got a sweet Groupon for half-off, but even at “full price” it’s something like $5 a month for a plan that would take you at least an hour a week to come up with. That’s already saved us a few hundred dollars. So, we are still going to use our card there. For our spending cash, we are pulling out actual cash each month, and when it’s gone, it’s totally gone. Basically, our miscellaneous spending comes down to having a little discipline and planning better. If it’s truly something we need (like an autographed copy of Justin Bieber’s latest album) then we should be anticipating it better. If it’s something we don’t need, we can use the word “no” and move on (as hard as that may be sometimes).

So, in conclusion, we are still going to use our credit cards for all the fixed expenses we can, and even for some of our discretionary spending, but when it comes to our spending cash, there too much risk and not enough reward to justify using our card. When we’re swimming in money (Scrooge McDuck, anyone?) we can probably afford to up our spending cash, and using our card won’t be much of a big deal. But with our current budget, it’s not worth it.

Comments: Do you tend to spend more when using a credit card? Have you tried switching your most “out of control” category to cash? Does your “rewards” card really end up hurting you in the long run? How have you used credit cards to your advantage? Also, did you know the world is going to run out of helium soon? I think I should start buying up helium now and sell it at a premium later. You kids’ birthday party budget is now going to have to allocate $300 towards balloons. And I’ll be on an island somewhere reaping the benefits. HAHAHAHAHA! No more Uncle Tom singing Happy Birthday like a chipmunk (thank GOD!!!)

Comments

I had read about the helium shortage and it’s crazy to think that we are running low. I’d invest in helium with you, but I am not sure where I could store it. I don’t think having a large collection of Mylar balloons is going to cut it 😀

As far as spending more on CCs, we do have a little creep from time to time, but in general I get such buyers remorse (even on things I really truly need), that we do ok most of the time.

We use credit cards to our advantage all the time. In the PF world it makes me “evil” because I churn credit cards for rewards (mostly free travel). I know for a fact this is not for everyone, but we have worked hard to build a good score and protect that score. I am aware that every time I open a card I get dinged, but that goes away with more available credit and a lower utilization ratio. Since we don’t need any kind of major loan in the foreseeable future we will continue to reap the rewards from CC signup bonuses.

I totally want to churn card for the sign up rewards. I was talking about this on another blog the other day. I wonder if once I use up all the sign up rewards if I should move on to the next one…hmmmm…. Though you’re right, it will ding your credit. I want to look into this more.

Sounds like some good self-reflection. I think you made the best decision.

We use credit cards for everything possible (had to use a little cash on a vacation recently – ugh! we hated it!) but I don’t think it makes us spend more. We have a very strict budget and never purchase anything we don’t have the cash for. We also pay off the credit cards by the end of the budgeted month (actually, several times per month) so we never let things slide to the next month, even though that wouldn’t cause us any interest just yet.

As for rewards, we do have cashback rewards cards and we track them, but we’re not getting tons of money out of it because we don’t spend tons of money! We have a low income and a lot goes to rent (which can’t be put on a card) so even with throwing everything else we can on one it doesn’t add up to much. Oh, and we stopped shopping at the grocery store almost completely and our three big food sources now – Costco, Aldi, and the farmer’s market – don’t take credit cards, so that’s another huge amount of money we can’t get rewards on.

I don’t really think the credit card is the problem for you, it’s the willingness to break your budget, but if removing the tool help you not break it, that’s great.

I wish I could put my mortgage on my card. I’d get TONS of rewards! Not sure why this isn’t an option.

Yea, I don’t see the card as the issue at all, it’s our tendancy to sometimes spend more and justify it by thinking “at least we’re getting rewards”. It’s a rare occurance, but it bothered me enough to write about it. Honestly, using emeals takes care of a lot of it, and just saying “no” to ourselves helps as well.

We use credit cards for all of our spending and pay it off in full a couple of times a month. I don’t think we spend more on credit cards. I actually think it helps us to track our spending because I can get online and check at any moment what we have spent, what we have left to spend, etc. Anyways, I guess it depends on the person.

I LOVE my credit card rewards and hate having cash so it works out perfectly for me. However, if I was worried about overspending on my credit card I would probably just switch to cash.Holly@Clubthrifty recently posted..Having Children: An Expensive Decision

I pay our card off a few times a month as well. I think we would end up doing Misc spending whether it’s cash, debit card, or credit, so the card is not the issue, I think. I probably just need to re-work my budget a bit. But at least we’ve gotten our food budget under control again. 🙂

Well I hope my recent credit card post had nothing to do with making you feel guilty about using credit cards. For some people it definitely makes them spend more though. In all honesty I probably spend more when using a credit card too. I only have to glance at the total as I swipe my credit card. So it just doesn’t have the same impact as having to hand over that much cash. I just love the convenience and bit of cash back too much. The cash back part manages to blind me from any negatives of using credit cards.

By the way, I think that’s two Justin Beiber mentions in one month. Good to see you supporting a fellow Canadian, but I am starting to wonder whether those are jokes or whether you are a secret fan.Modest Money recently posted..Starting a Family? Think Debt Consolidation

I honestly don’t even look at the totals when I purchase anymore, unless it’s over $50 or so. Handing over cash is psychologically different than swiping a card, so using actual spending cash has definitely helped us.

Bieber is just too easy to poke fun at 🙂 . I think I’ve heard one song….no really interested in listening to any more. His fame is more interesting to me than his “music”.

I don’t have a credit card at the moment. I can’t be trusted with one yet but eventually I plan to get one. And be a responsible person with it and pay it off in full every month! But I don’t use a debit card to handle groceries either. Why? Because it’s not “real” to me unless I’m handing over that hard earned cash. So I’ll tend to spend a lot more when it’s plastic as I’m not seeing the cash. And I would love to swim like Scrooge McDuck but I have a feeling it’s not happening anytime soon!bogofdebt recently posted..An iffy week

I’ve found that handing over cash does = real money to me more than a card. Maybe it’s a generational thing. I want my kids to use credit cards as soon as possible and equate that with real money so that they understand the value of that money being spent, instead of ignoring the totals like I do when I swipe my card.

We do consciously spend every dollar, and don’t just buy stuff on a whim, but it’s just easier to justify certain purchases when using a card over spend cold, hard cash.

I personally put almost everything on CCs. I find it easier to keep track of purchases by checking my statements from time to time. The odd times I use cash, I sometimes forget to track it and then I forget what I did with that $20. My thinking is that if I’m going to buy something anyway, might as well use my credit card to get points for free groceries.MakintheBacon$ recently posted..Dating in the Workplace: Recipe for a Bad Romance?

Tracking credit card purchases is way easier, that’s why I am only using cash for my “spending cash” category. When i used to be “cash only”, I would make sure to update my spreadsheet everyday and mark down what the cash was spent on. Now I know all cash “should” end up only being in our “spending cash” budget line item.

I’m glad to see that you don’t totally drink the Dave Ramsey kool-aid. I did that for a long time and began to think credit cards are evil…but they’re not. They can be utilized as a tool and a way to get free money as long as they’re used correctly, by the proper people.

Yea, I love the motivational aspect of Dave’s ministry, but it’s a bit too safe for my liking, and does leave some benefits on the table in the name of “never using credit cards”. I have never gotten in too deep with credit card debt, so I am not worried about the “risks”. I can see a little bit of spending creep as you can observe in my post, but so far the benefits outweigh any cost. And who’s to say I wouldn’t spend the same money if it was a debit card?

What is your business again? Something to do with financial counseling, right?

That category always bums me out. Usually it’s a sign of me not accurately forecasting the month. My wife and I meet up before each month and try to predict our spending, but don’t always get it right.

I rarely use my credit card–only when required or very convenient, maybe an average of 2-3 transactions per month. My reason is more about paranoia of having my spending tracked than fear of misuse. I feel every scrap of info the marketing gurus and retailers can get about we consumers will only be used to hurt us. Cash keeps my spending invisible.

For those with a tendency to or history of misusing credit cards, I think not having one at all may be the best course. For whatever reason, there are people who simply cannot have a credit card without getting into financial trouble with it. A milder alternative is a card with a very low credit limit. The challenge here is that the issuer will constantly be trying to raise the limit (it wants the consumer to misuse the card! more profitable), so the cardholder must have the gumption to decline limit increases or cancel and change card is the issuer won’t listen.Kurt @ Money Counselor recently posted..Reach Goals with Planned Savings

Marketers do definitely track everything you do, online and with your money. Sounds like you’re trying to fly under the radar! 🙂

Pre-paid credit cards are also a good idea. We just got one from AMEX (I would have it advertised on my sidebar, but the deal ended) and loaded it with $200, and when it’s gone, it’s gone, just like cash. We also got a $25 bonus loaded to it for signing up.

I use my credit card for almost all of my expenses. It is hard to say whether it causes me to spend more money. I don’t think it makes much difference for me because I don’t like spending money whether it is cash or credit. The rewards I receive are probably more than enough to make up for any extra spending.Andy Hough recently posted..June Expenses – $843.99

I definitely find when I use my credit card, I spend a bit more than I should and because it takes a few days to update on my account, I forget what I bought. But in general I love my credit cards and after 8 years together I’ll never missed a payment so I guess I’ll be keeping them 🙂Mo’ Money Mo’ Houses recently posted..My New TV Obsession – The Young Apprentice

I use my credit card for everything, and pay the balance off in full each month. I don’t find myself spending more, but I like using my credit card for the rewards.Robert @ The College Investor recently posted..How to Start Minimizing 2012 Taxes

Credit cards aren’t for everyone. Me, for example. I had to be bailed out of $100,000 in credit card debt and if that isn’t a take-my-cards-away-and-cut-them-up moment, I don’t know what is.

I use my debit card for almost everything. Knowing the money is coming out of the account *now* really makes a difference. With credit cards, I would “forget” to put enough money aside or buy something not extravagant but really more than I could afford.Charleen Larson recently posted..Facebook likes fake Facebook likes

It’s really tempting to purchase anything you have a craving for, or stuff you “deem” necessary when you have a credit card. But you look like you have handled it so well despite the temptations. It was not your fault the stores shorted you on your points, and it was clever to save big amounts on your flights. Plus, you didn’t pay a cent for charges. It turns out that you have narrowed the problem to food spending, so far, so good.

Yea, I am always analyzing our spending to look out for problem areas. Since I’m a bit obsessed with budgeting, I input every transaction to make sure I don’t miss anything. I noticed the Misc category getting bloated and us blowing the food budget. Since I track everything, I was able to tackle these issues instead of wondering where all my money was going.

Recently, I was using my credit card at the grocery store for a while and paying it off as SOON as I got home. It STILL felt risky, and I actually stopped it after a bit.. 🙂Jefferson recently posted..Six Ways To Listen to Music Online For Free

I’ve got one personal that we use, and some that we opened a long time ago, but don’t use. Don’t want the credit ding to close them, so I just have them locked away for now. I should really get a business one for my tax practice this year.

Honestly I don’t think there is anything wrong with using credit cards if your spending stays the same and you pay your balance. My spending doesn’t increase just because I use credit and I have been able to pay for multiple airline tickets because of the rewards.Sean @ One Smart Dollar recently posted..Student Loans for Graduate Students

We’ve definitely made out with some sweet rewards with our CC. We had basically 45% off our Hawaii flights, and we’re getting free flights in November. About $1,000 in rewards so far. I jut like to be conscious of my spending, and try to catch any areas I find myself overspending.

I’m the opposite — I use credit cards for everything, and cash just looks out from my wallet and says “HEY FREE MONEY!” and it makes me think, “ooh, six bucks. what can I do with that?” in a way that looking at my credit card never seems to.Kathleen @ Frugal Portland recently posted..Reframing the issue

I have 2 credit cards. One for everyday purchases and one for larger purchases (no limit). I receive a lot of rewards. I’m one of the few people that don’t spend more with a credit card. I think people too often blame the credit card instead of themselves. I love my CC’s but had no idea about the helium shortage. Interesting..A Blinkin recently posted..Saving Money On Airline Fees: NerdWallet’s Quick Tips

Yea, credit cards overspending is definitely a symptom of a greater issue. You can’t blame an inanimate object for your stupid decisions, that’s just ridiculous. But I think that you can realize that you might now have the will power for some temptations and eliminate the tool you normally use when giving in.

I plan to use credit cards for the travel perks. My parents were able to get the Southwest Companion Pass this year and they have enjoyed raveling for free. They have taught me to budget and I have a lot of self control . Although I like Dave Ramsey, I think a one size fits all plan doesn’t always work.

Travel is a great way to go, especially in college or just out of college. We’ve got the Alaska Air card, and have loved the travel perks so far. Personal Finance is exectly that, “Personal.” If you followed someone else’s advice for everything, it would be “what other people say” finance.

Meet Jacob

I'm a husband, father, and budget nerd who loves taking complex financial problems and breaking them down into a simple, easy-to-follow financial plan. It all started after getting engaged over 6 years ago... Read More…

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Information presented on iHeartBudgets is intended for informational purposes only and is not meant to be taken as financial advice. While all attempts are made to present accurate information, it may not be appropriate for your specific circumstances and information may become outdated over time. I am not a personal finance professional and you should seek out a professional before making any financial decisions.